Morning Call: Europe, US Debt Woes Send Market to Sharply Lower Open
US stock futures point to a sharply lower open on Wall St Monday as the congressional supercommittee looks set to announce it was unable to reach a deficit-reduction. Deep differences of opinion over tax and spending reforms made it impossible to strike a compromise, and this defeat will mark another market-negative catalyst from our Federal government. A long impasse over the debt ceiling, in which a faction of representatives started serious default rhetoric, triggered the market’s steep decline in July.
In addition, the situation in Europe is not getting any better. France seems to teeter close to a credit downgrade, with Moody’s explicitly stating that rising interest rates on government debt could impact the country’s AAA rating. Spain has also seen borrowing costs rise sharply, and the new Prime Minister is under pressure to make severe economic reforms. Prime Minister elect Mariano Rajoy’s center right party scored the country’s biggest election victory in 30 years, with a mandate to pull the troubled economy out of the gutter.
The third strike for the market today came from Chinese Vice Premier Wang Qishan, who warned that the global economy is in dire straits. China has shown reluctance to participate in funding of the European rescue fund, even though it sees economic calamity on the horizon.
This is also a holiday week, which adds to the uncertainty. Trading volume is typically light on a holiday shortened week. A thin tape could contribute to greater market volatility.
In merger news, Pharmasset (NASDAQ:VRUS) jumped 86% after Gliead Sciences (NASDAQ:GILD) agreed to buy the drug company for $11 billion in cash. Allegheny Corp (NYSE:Y) also agreed to buy Transatlantic Holdings (NYSE:TRH) at a 10% premium to its current share price.
Last week was gut check time for the market, and it broke down at the lower end of the wedge pattern. In the markets there is no need to be a hero and blow up an account fighting the wrong side of the trade. The S&P failed at the 1260 area for the third time in that afternoon and then reversed hard to put the wedge in motion to the downside.This was the same day IBD put the Big Picture of the market back in correction!
Depending on style, some traders sold longs while others got aggressively short. I did not go short except in oil, through the inverse oil ETF (NYSE:SCO). These are fast markets and dangerous times, with even professional market participants at a loss of foranswers and solutions.
S&P futures are opening at an area that held multiple times in early October. Those not obeying stops last week will probably be hitting out longs today. Those who are coming in flat can look to see if there is a trade or a buyable set up in the 1187-1195 Area. Macro longs may try to protect this area, so it’s worth a look. The next support level to watch is the pivot at 1168-1175. Next would be the 10/10 support from 1158-1162.
If the market reverses and tries to use today as a (Day 1) Resistance Should at the 50day moving average we are gapping through 1205-1207. Beyond that is 1218-1222
When you get gap downs like this, traders watch to see if any stocks can go green. If any groups can help lead the indices off the lows. This will help guide us to whether we can reverse today and fill some of this downside gap. If we don’t fill gap in the first hour or so it can turn into a trend down day.
Scott Redler is the Chief Strategic Officer of T3 Live. He develops all trading strategies for the service and acts as the face of T3 Live. Mr. Redler focuses on thorough preparation and discipline as a trader. Scott Redler has been trading equities for more than 10 years and has more recently received widespread recognition from the financial community for his insightful, pragmatic approach. He began his career as a broker and venture capitalist where he was able to facilitate relationships that led him into trading. Beginning his trading career at Broadway Trading in 1999, Scott moved on with Marc Sperling to Sperling Enterprises, LLC after establishing himself as one of the best young traders in the firm. As a manager at Sperling Enterprises, he maintained his status as a top trader in the industry while working closely with all traders in the firm to dramatically increase performance. Scott has participated in more than 30 triathlons and one IronMan triathlon, exhibiting a work ethic that also defines his trading. His vast knowledge and meticulous attention to detail has led to regular appearances on CNBC, Fox Business and Bloomberg, and he has been quoted in the Wall Street Journal and Investor’s Business Daily among other publications. Scott produces much of the media and content available to subscribers and followers. T3LIVE.com is an online financial media network and education platform that provides active traders and investors with market analysis, real-time access to strategies, and in-depth training from real traders, real-time.
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